Silver risks sell-off if equities continue to rally

The US stock market is continuing to show very bullish trading activity, even in the face of Apple’s drastic drop yesterday. Overall, we believe the global investing community is starting to get on the same page in that 2013 could be a very risk-on focused year. The cash S&P 500 hit 1500 this week for the first time in years, and the futures are literally just a couple of points away. The MAR13 E-mini S&P 500 futures trading up to 1497 today, and are up 4.25 points, or .28%. We continue to hold our first major technical upside target at 1530. We would not be surprised to see this level hit in the futures before summer.

We are seeing the US bond market of the US really start to slide, with many Eurodollar interest futures taking big losses today, and the benchmark US 10 year note (MAR13 contract) trading down 22 ticks today to 131’17. We believe this market has very significant downside, to the tune of at least 4-5 points over the next 6 months, especially if the US economic numbers, focusing on jobs, come out very strong. The payrolls and employment #’s should have a huge impact on the bonds.

Overall, soft commodities are weak, with cocoa hitting new 2013 lows at 2172. Cotton is down 2.69% today, after making a huge multi-day run up. Sugar futures are also trading beneath the key pivot level of $.19. Sugar is trading at $.1843 today, and we could see that market sliding lower.

It is interesting to see how the markets are moving recently. Commodities and equities seem to be getting more uncorrelated, and the bond market is starting to react to the potential of a real upturn in the equity markets combined with global growth increasing. We could see some significant trends this year in several key financial markets.

We focus more on silver today. Silver, as noted on our chart, has been in range between $27 and $35 since September 2011. We believe that if the equity markets continue to rally, people will get out of gold and silver, and thus cause these markets to decline. We believe silver will approach the key support level at $27, and possibly even head lower after that. Gold has now tested the $1,700 this year, and not been able to trade above it. We believe gold might head lower to the key support range at $1,620-$1,630, and if it breaks that, it could head to $1,580. We would not be surprised to see this occur as the risk-on appetite might intensify.

About the Author

Anthony Lazzara, CEO of Newport Beach, Calif., commodities investment firm Lido Isle Advisors, spent 10 years as a trader and floor broker at the Chicago Board of Trade and Chicago Mercantile Exchange. Anthony has significant experience in the energy, fixed income, and equity futures markets. After being a long-time independent futures trader, Anthony saw a tremendous opportunity to educate investors on how to invest in professional traders. Anthony is now focused on his duty as CEO of Lido Isle Advisors.